Cost cutting is an age-old practice and the pharmaceutical industry has certainly sharpened its skills in recent years. Now, though, a move by GlaxoSmithKline to increase the time by which payments are made to some of its suppliers has earned the drugmaker the distinction of being named to the ?Hall of Shame? by the Forum for Private Business, a group that represents small businesses in the UK.
According to the organization, Glaxo (GSK) recently decided to take up to 95 days to pay suppliers instead of 60 days, a move that the Forum has called ?bully boy behavior,? and declared this amounts to ?poor payment? practices. The group also noted the drugmaker two years ago had increased payment time to 60 days.
?When suppliers receive a letter like the one GSK?s suppliers are starting to receive, few have any choice but to agree to the new payment terms. There is little room for bargaining through fear they will lose the business, and no small firm wants that in the current economic climate,? the Forum says in a statement on its web site. ?What makes the GSK case all the worse is the sheer size and profitability of the firm ? the fourth biggest pharmaceutical company on the planet. This is not a business struggling to make its way in the world.
?It is, however, a company concerned only with boosting its own profits whatever the cost to smaller firms, and has scant regard for the consequences of its actions. Most people will see this as the worst type of corporate greed imaginable. GSK can?t even argue they?ve not got past form. Only two years ago they increased supplier payment terms to 60 days, and now this. They are relentless.
?Of course, the problem is that when lesser companies see the example being set by the likes of GSK, and other household names? then they think it?s OK to do the same. It?s not, it never will be, and it?s high time big business started treating the army of small businesses who supply them with some respect. Prompt payment is not too much to ask, but can make all the difference for struggling small firms.?
Like it or not, this is often the way of the world and is nothing new. In many industries, this is simply called ?banking with the trade,? a reference to holding back from making payments as long as possible in order to have use of the money yourself. But drugmakers are not often singled out so publicly for such decisions and raises the prospect that the pharmaceutical industry may encounter more vocal run ins with some suppliers. In any event, we asked Glaxo for comment and will update you accordingly.
[UPDATE: A Glaxo spokeswoman writes us to say that, "yes, we have reduced the number of payment runs we make to once a month, at the beginning of each month, 60 days after we have received an invoice. Our previous process was to pay invoices 60 days from whenever they were received. These changes will make payment terms with suppliers consistent across the group, will reduce complexity and provide more certainty to suppliers as to when they will be We greatly value the relationships with have with our many suppliers and understand the pressures on cashflow and financing being faced by smaller companies at this time.
"This is why, for smaller companies, we have a number of schemes in place to help them, including alternative payment schedules and offering supply chain finance. For most suppliers, the changes we have made to our payment terms will have little to no impact if they submit their invoices towards the end of the month.]
shock pic thx to ogimogi on flickr
Hat tip to FierceCRO
Source: http://www.pharmalot.com/2013/01/glaxo-enters-the-small-business-hall-of-shame/
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